Significance of Trade Secret on Business Laws

  • Rutu Mistry
  • Show Author Details
  • Rutu Mistry

    Advocate in India

  • img Download Full Paper


Each day the market is becoming competitive. To survive in this competition, business strategies are updating and certain formulas and secrets which keeps business going can be termed as trade secret in layman’s language. Any knowledge or information which is used for business development which is not available in public domain is trade secret. The protection or registration of trade secret is not given explicitly under Indian laws as compared to other IPs. However, TRIPS mention about the criteria to consider that particular information as trade secret. Because of the ever-changing world and the fact that trade secrets may be found by others, businesses are often urged to continue to transform and innovate their trade secrets so that competition remains in place and their trade secrets are not identified. Major issue comes when the question of the employees of the company are to be considered in order to protect the trade secret. Many litigations have evolved due to Section 27 of Indian Contract Act which makes the restrain of doing business void. The judicial intervention somehow gives any idea on how to protect the concept of trade secret when there is no explicit registration or protection of it. With more advancement in the competition, the need to protect trade secret has become necessary.


Research Paper


International Journal of Law Management and Humanities, Volume 4, Issue 3, Page 170 - 182


Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution -NonCommercial 4.0 International (CC BY-NC 4.0) (, which permits remixing, adapting, and building upon the work for non-commercial use, provided the original work is properly cited.


Copyright © IJLMH 2021

I. Introduction

To gain an advantage over their rivals and retain the uniqueness of their product/service, companies typically gather and use new and ground breaking concepts that are unknown to their competitors. Information that isn’t widely recognised by rivals and is shielded by confidentiality agreements qualifies as quasi-intellectual property, or “trade secret,” and is protected from disclosure or unauthorised use under tort or contract law. The size of a company has no bearing on whether or not it qualifies for a trade secret and its security.

Enforcing trade secret rights is critical to an organization’s long-term survival. In this era of globalisation, it is critical for companies to ensure that their trade secrets are adequately protected from rivals in cases where there is a risk of disclosure, especially when recruiting new workers for strategic innovations or introducing new products and services. The philosophy of trade secret law is to protect, maintain, and promote ethical practises and fair dealing, which promotes creativity. Unauthorized use of trade secrets by someone who isn’t a trade secret holder is considered a breach of trade secrets and unfair practise.

II. Concept of trade secret

A trade secret is any data or knowledge that applies to companies that is not commonly available to the general public, as well as fair measures to keep such information confidential. “A trade secret is any knowledge of commercial value that is not in the public domain and for which fair measures have been taken to protect its secrecy,” according to the North American Free Trade Agreement (NAFTA). A trade secret, according to the court in Burlington Home Shopping Pvt. Ltd. v. Rajnish Chibber[2], is information that would cause actual or substantial harm to the owner if exposed to a competitor. It may contain formulae not only for product manufacture but also, in some cases, the names of consumers and the products they purchase.[3]

There are three conditions that must be considered according to Article 39.2 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS):

(a)The information is not widely known by or readily available to individuals who usually deal with the type of information in question, either as a whole or in the particular configuration and assembly of its components;

(b)The information has real or potential commercial value because it is secret;

(c)The person legally in charge of the information has taken appropriate measures under the circumstances.

Trade secrets include financial statements, client lists, and customer information, as well as company strategies and policies.[4] Customer information, on the other hand, was not considered trade secret or property in India. According to the assumption that the goal of confidentiality is usefulness, a trade secret must be utilitarian in nature.[5]

Trade secrets are sensitive information’s intellectual property (IP) rights that can be sold or authorised.

In general, for knowledge to qualify as a trade secret, it must be:

  • Commercially important because it is classified, accessible only to a small number of people, and
  • subject to fair efforts by the legitimate owner of the information to keep it secret, such
  • as the use of confidentiality agreements with business associates and employees.

Unauthorized possession, use, or distribution of such classified information by others in a manner that is inconsistent with honest business practises is considered an unfair practise and a breach of trade secret rights[6]

III. What is considered as trade secret?

Intellectual property rights such as copyright, patents, and trademarks are well-known. Trade secrets, on the other hand, are an extremely useful type of security that is often used to safeguard sensitive technological or confidential information. Here are some examples of what trade secrets should safeguard:

  • Ideas that provide a competitive advantage to a company or person, allowing them to get a “head start” on the competition. This may be anything as basic as a design for a new product or marketing campaign.
  • Competitors’ knowledge of a product or service in progress, as well as its functional or technological characteristics, such as the inner workings of a new software programme.
  • Marketing plans, expense and pricing statistics, and client lists are all examples of useful business information.
  • Negative know-how refers to knowledge gained during research and development about what not to do or what does not function optimally. This knowledge is often almost as useful as the effective goods or techniques.
  • Almost any other piece of knowledge with any significance that isn’t well recognised by competitors. This may include, for example, a list of customers rated by their company’s profitability.[7]

In general, trade secrets secure sensitive business knowledge that gives a company a competitive advantage and is unknown to others.[8] Technical information, such as production processes, pharmaceutical test details, computer software designs and sketches, and commercial information, such as delivery systems, lists of suppliers and customers, and advertisement strategies, are all examples of trade secrets. A trade secret can also be made up of a mixture of elements that are each in the public domain on their own, but the combination, which is kept secret, gives the business a competitive advantage. Financial records, formulas and recipes, and source codes are all examples of information that could be covered by trade secrets.

IV. Trips agreement on trade secrets

Although Article 39 of the TRIPS Agreement allows members to protect trade secrets, it does not include a definition, just a summary. Article 39, paragraph 2 reads as follows:

Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practises so long as information: \s(a) is secret in the sense that it is not as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question.

(b) has monetary value due to its secrecy; and

(c) has been subject to fair measures under the circumstances, by the individual lawfully in possession of the details, to retain it

The acquisition of undisclosed information by third parties who know, or were grossly negligent in failing to know, that such practises were involved in the acquisition is defined as “at least practises such as breach of contract, breach of confidence, and inducement to breach, and includes the acquisition of undisclosed information by third parties who know, or were grossly negligent in failing to know, that such practises were involved in the acquisition, and includes the acquisition of undisclosed information by third parties who know, or were grossly negligent in failing.[9]

Article l0bis of the Paris Convention, on the other hand, which TRIPS members are required to follow under article 2(1) of the TRIPS Agreement and to which article 39 of the TRIPS Agreement refers, provides a general criteria for honest practises in clauses (2) and (3). (3). Although clause (2) finds any act of competition that is contrary to fair trade practises in industrial and commercial matters to be unfair, clause (3) specifically forbids it.

  1. all acts of such a nature as to create confusion whatever, with the establishment, the goods, or commercial activities, of a competitor;
  2. false allegations in the course of trade of such discredit the establishment, the goods, or the commercial activities, of a competitor;
  3. indications or allegations the use of which trade is liable to mislead the public as to the manufacturing process, the characteristics, their purpose, or the quality of goods.

Article 39 of the TRIPS treaty, which is an expansion of article l0bis, contains trade secrets. Article 39 describes any violation of secrets as an act contrary, and thus falls under the purview of article 106/Convention. Article l0bis, on the other hand, does not comment on acts of unfair competition or practises that are contrary to the law. Though elaborating on the “Model Provisions Against Unfair Competition,” the World Intellectual Property Organization (WIPO) concluded in February that the use of classified knowledge is unfair competition.[10]

Article 6 of the Model Provisions deals with trade secrets and establishes when the use of confidential information constitutes an act of unfair competition, which is similar to article 39 of the TRIPS Agreement. Paragraph (4) of Article 6 of the Model Provisions, on the other hand, is in derogation of Article 39(3) of the TRIPS Agreement and is aimed at entrepreneurs who use knowledge obtained from authorities, rather than the authority, which should ensure the relevant security.

Exploiting a secret without the owner’s permission is immoral, even though it does not affect the “owner” of the secret. Authorization from the owner (e.g., a licence) and independent discovery by “reverse engineering” based on observation of the object in public use or show are also acceptable methods of acquiring secrets.[11] Indeed, putting a product on the market that contains an engineering secret means that the secret will be discovered first by rivals and then eventually destroyed.

Article 39 does not cover third parties who have accessed information by legitimate means but are not in contractual relationships with the lawful recipient of the information. Third parties, on the other hand, will be held responsible if they are aware of the information’s sensitive existence or are criminally negligent in failing to recognise that the information was obtained by deceptive business practises. Although protecting trade secrets, what constitutes information or gross negligence must be specified and given in the members’ national laws. Similarly, article 39 does not offer safeguards against the information’s accidental disclosure or use from any publicly accessible content, even in a product’s embodiment.

Contracts are also used to safeguard trade secrets. Employees who violate their employment contracts often divulge trade secrets.[12] If information is revealed in violation of a contract (e.g., a licensor-licensee relationship), a quasi-contractual relationship (e.g., a principal-agent relationship), or a relationship (e.g., an attorney, owner, or auditor), the law may be invoked to determine the legal dimensions of the contractual relationship.

V. Trade secret protection in india

In this era of globalisation, where companies offshore to different countries for development and cheaper labour, it is becoming increasingly difficult to protect business plans and secrets. Businesses regard technology as a secret rather than patentable information. This is significant because market competition has progressed to the point that, once information is available, competitors innovate. While this encourages healthy competition, it becomes increasingly difficult for new businesses to keep up or prosper if such data is available to business giants.

It is becoming increasingly difficult to protect business strategies and secrets in this age of globalisation, where businesses off-shore to different countries for growth and cheaper labour. Technology is regarded by businesses as a trade secret rather than patentable knowledge.[13] This is due to the fact that market rivalry has reached a stage where rivals can innovate once information is available. Though this promotes healthy competition, it becomes increasingly difficult for new companies to keep up with or thrive as such knowledge is made accessible to corporate giants.

Today’s countries understand the importance of such confidentiality and are working to integrate it into their legal structures. Trade-related Aspects of Intellectual Property (TRIPS), the General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement have contributed to the evolution of trade secret rights in the international community (NAFTA). Trade secrets in India are only covered by conventional judicial decisions, as well as provisions and elements of equitable law, contracts law, and tort law. The lack of trade secret legislation has always made decisions difficult, but judicial pronouncements have always attempted to establish and safeguard trade secrets while also providing remedies for breaches of confidentiality.[14]

Traditional judicial rulings, equal law, contract law, and tort clauses and elements are the only ways that trade secrets have been covered in India. Due to the absence of a trade secret statute, judgments have always been difficult, but judicial pronouncements have always tried to define and protect trade secrets, as well as to remedy confidentiality breaches.

(A) Leading cases

The leading Indian case is Konrad Wiedemann GmbH v. Standard Castings Pvt. Ltd[15] relied heavily on Lord Green’s findings in the Saltman situation. In the other hand, it is entirely possible to have a confidential document, whether it is a formula, a design, a sketch, or anything similar, that is the result of the manufacturer’s work on materials that anybody can use; but what makes it confidential is that the manufacturer of the document has used his brain and thereby created a result that can only be provable.

In Suhner v. Transradio Ltd., Plowman[16], J. confirmed that a document’s confidentiality is determined not by whether the information it contains is publicly accessible, but rather by whether it contains valuable information obtained for a particular reason by the complainant and submitted to the defendant for that purpose. If these conditions are met, the record will be kept private, and the defendant will not be allowed to use it for any other reason.

In India, there is no clear law that protects trade secrets and confidential information. Indian courts and tribunals, on the other hand, shield trade secrets, proprietary knowledge, and market know-how. Under common law, a misappropriation suit will provide broad protection for trade secrets. Trade secrets may be misappropriated if there is a breach of trust or if a third party has inappropriate access to sensitive information. This misappropriation may occur either by misappropriating confidential information or by cheating or stealing.

The Indian courts have streamlined three sets of situations that can lead to legal action:

(a)When an employee comes into possession of a secret or sensitive information in the course of his job and transfers that information to an unauthorised person, either carelessly or deliberately;

(b)Any unauthorised individual (for example, a new employer) incites such an employee to provide the information listed above; and

(c)When a licensee breaches a provision of a licence for the use of know-how, either expressly stated in any agreement or inferred by actions, to keep that know-how secret and fails to do so.

In the absence of legislation, Indian courts and tribunals have made it abundantly clear that, for the benefit of Indian companies, they would protect trade secrets under common law. In John Richard Brady and Ors v. Chemical Process Equipment P Ltd and Anr[17], the Delhi High Court held that it would be in the interests of justice to prevent the defendants from abusing the plaintiff’s fodder production unit’s know-how, specifications, and technical information entrusted to them under express condition of strict confidentiality.

In Daljeet Titus, Advocate v. M Alfred A Adebare and Ors[18], the court agreed that, in agreement with the Duchess of Argyll and Ors[19], the court must intervene to avoid a breach of trust that is not triggered by another party. Finally, the court directed that the defendants would not be able to use the plaintiff’s information that they had access to in violation of confidentiality, thus issuing an injunction. The defendants who collaborated with the plaintiffs are barred from using the agreements, due diligence reports, consumer contact lists, and other personal information they learned through their relationships. In relation to trade secrets of banking companies, the Delhi High Court observed that banks owe a duty of confidentiality to their customers that arises from their monetary ties, and that if anyone steals any information that is guided by secrecy between such a bank and the customer, it shall be liable for obstructing such secrecy.

(B) Contract Act

Under the concepts of equity and contractual obligation, Indian courts have upheld trade secret rights. The clause relating to restriction of trade in Section 27[20] of the Indian Contract Act makes this clear. This portion, which is broad in scope, declares all trade restraint agreements void. The section was strict in its invalidation of restrictions at first, but it was implemented while trade was still developing, and the section’s aim was to secure trade restraints. Later, the Law Commission of India’s involvement in 1958 and its decision to allow fair restraint came into play.

VI. Employees and trade secrets

Corporate employees can pose a threat to the protection of a company’s intellectual property. Although intellectual property protection remedies and protective measures can be implemented, employee loyalty cannot be compromised, and it remains the most significant barrier that businesses must overcome in order to protect their IPs. Coco-cola goes to such lengths to keep the formula a trade secret that only two people in the company are aware of the proportions of ingredients in their drink. Because of the ever-changing world and the fact that trade secrets may be found by others on their own, businesses are often urged to continue to transform and innovate their trade secrets so that competition remains in place and their trade secrets are not identified. [21]

For companies that operate and employ employees in India, the threat of recruitment is unavoidable. It’s difficult to come up with new ideas for trade secrets that are continually changing and innovating.[22] Some companies make unscrupulous attempts to steal jobs from their competitors in order to gain access to their artistic abilities and knowledge of their competitors’ success secrets.

In general, an employee’s ability to use the skills and expertise he gained during his employment cannot be restricted by contract after his termination. at liberty to use his or her gained skills and information for personal gain or for the benefit of others However, an employee can reveal or use confidential information obtained during his employment, either during his employment or after it has ended. An ex-employee can be prohibited from revealing a chemical formula or a memorised customer list. When it comes to the responsibility of loyalty, there is a difference between an employee and an ex-employee. The employee has a duty of loyalty to the employer, which expressly prohibits a professional employee from assisting a rival despite the fact that no information has been revealed to the employee. An ex-duty employee’s to his former employer is obviously limited. In so far as he is constrained by a legitimate restrictive covenant, an individual can work for a competitor of his former employer. The ex-employee may also be obliged not to use details provided to him in confidence by his employer.[23]

Maintaining and rising market share necessitates the security of trade secrets. Present and former workers pose the greatest threat to trade secrets. One risk factor for trade secret theft is from those who have a confidence relationship with the company, such as current and former employees. Misappropriation of trade secrets is deeply rooted in the peculiar essence of the employer-employee relationship, as Justice Holmes observed several years ago. When it comes to trade secrets, the term “land” is an unanalyzed expression of a certain secondary consequence of the primary reality that the law imposes certain rudimentary good faith criteria.[24] Whether or not the plaintiff has a valuable secret, the defendant is aware of the truth, whatever they are, due to a special trust that he embraced. The property may be taken away, but not the trust. As a result, the most important aspect in a trade secret case is not land or due process of law, but rather that the defendant established confidential relationships with the plaintiffs.

Employee mobility and departures are a particularly dangerous threat. A trade secret, according to Justice Posner, is essentially a piece of knowledge such as a client list, a manufacturing process, or a secret soft drink recipe.[25] The only way to expose the password is to indulge in criminal activity. To put it another way, trade secrets are knowledge that is essentially determined by the employee’s confidential relationship with his or her employer. Unlike patents, copyright, and trademarks, which assert a direct property right against the entire world, trade secret knowledge is inherently relational. If an employer establishes the existence of a trade secret and that it was misappropriated by a current or former employee, the employer must also show that it took fair steps to protect its proprietary property in its dealings with the employee. As workers are well-versed in using private web e-mail accounts and other forms of communication outside of the company email system, this creates new challenges for modern companies.

The common law theory of restraint of trade is statutory recognised under Section 27 of the Contract Act of 1872. In India, this segment has attracted the majority of trade secret litigation. Section 27 states that any agreement barring an individual from engaging in any business or occupation is void. The Delhi High Court dealt with the current authorities in Wipro Limited v. Beckman International SA[26] and the doctrine of restriction of commerce and trade secrets in India in Wipro Limited v. Beckman International SA. The court first cited Star India Pvt Ltd v. Laxmiraj Nayak[27], citing the court’s observation that “had right to terminate the contract on the basis of wrongdoing cannot be claimed that the defendant had absolutely no right to the jobs on account of better prospects or other personal reasons.”

The court in Taprogge Gesellschaft MBH v. IAEC India Ltd.[28] held that the distinction between restrictions imposed by a contract during the contract’s duration and those operational after the contract’s termination is of fundamental character, and that the object of the restriction defines the character of the restraint. Restraints that operate during the contract’s duration serve to advance the contract, while restraints that operate after the contract’s termination should attempt to protect freedom from competition from a person who no longer works for the contract. Negative covenants in effect during the duration of the contract are generally exempt from section 27 of the Contract Act because they are intended to satisfy the contract rather than to restrain it. If a limitation on freedom of trade, company, or career applies after the contract is ended, the restriction takes the form of a constraint on trade, business, or profession. This distinction, which is essential in nature, must be remembered.

VII. Trade secrets in action presently

(A) National Metal and Materials Technology Center, Thailand

While a number of developing countries have succeeded in allowing market forces to drive domestic innovation, technology transfer organisations (TLOs) have played a key role in many of them. The Kingdom of Thailand (Thailand) is no exception, with a range of agencies and programmes promoting technology creation and commercialization within the region. The Industrial Technology Assistance Program (ITAP), a division of Thailand’s National Science and Technology Development Agency, is one such leading organisation (NSTDA).[29]

NSTDA aims to secure all of its developed technologies by using the IP system strategically. The TLO, specifically the IP Management Group (IPM) and the IP Policy Group, are in charge of securing IP rights (IPRs) for NSTDA-funded research (IPP). IPM draughts both national and foreign patent applications, and it is one of Thailand’s most experienced IP management groups, with over 150 applications filed on average per year. IPM is also in charge of any new intellectual property rights (IPRs) and other forms of confidentiality, such as trade secrets and non-disclosure agreements (NDAs). IPP is responsible for drafting NSTDA policies on IP development, security, and exploitation, as well as advising Ministry of Science and Technology working committees on IP policy.[30]

(B) Patent and Trade Secret

NSTDA drafted a patent application for the method of recovering residual rubber solids from sludge waste because of the technology’s perceived utility in the rubber industry. Not only in Thailand, but also in the neighbouring major rubber-producing countries of Malaysia, Indonesia, and India, applications were submitted. National and foreign applications were submitted in 2009 and are still being reviewed as of early 2011. While patents are the primary weapon used by NSTDA to protect its inventions, other forms of security, such as trade secrets, may be required at times.[31] This can be seen in the sludge rubber recovery technology, which posed a number of IP issues. First and foremost, the procedure is simple and straightforward to repeat. Second, since it is impossible to tell if recovered rubber came from this method or from somewhere else, compliance is difficult. Finally, since one of the technology’s main benefits is the ability to use existing chemicals and manufacturing process flows, future rivals and consumers already have a wealth of relevant information.

VIII. Conclusion and suggestions

Despite the fact that trade secret law blends into the current context of tort law, contract law, and antitrust law, there are several issues with its inception in the area of intellectual property rights. A separate regulation for trade secrets, on the other hand, would remove the difference. As a developing country, India needs a strong trade secret protection rule. The TRIPS Agreement required its member states to amend their laws and enact new legislation in order to meet the TRIPS Agreement’s obligations. It is past time for India to enact a statutory law that protects trade secrets and confidentiality while also amending the current framework of the Competition Act to avoid misappropriation and enforcement of such confidential information. The country’s criminal law, the Indian Penal Code, also needs to be revised, as it actually does not allow for criminal responsibility in cases of breach of trust or disclosure of trade secrets, as it does in other countries. Individuals who engage in such activities are not deterred by the mere existence of a criminal statute, and so intensive action and practise are required to keep such events at bay.

Similar clauses in the Companies Act of 1956 should be revised to require due diligence with respect to trade secrets. As a result, businesses will be proactive and attentive when safeguarding their trade secrets. Companies must develop a strong security framework around such information in this manner and for this reason. Companies must also cultivate strong psychological loyalty among their workers in order for nondisclosure and/or non-compete agreements to be more successful, making it easier to protect trade secrets.

While the law of trade secrets falls into the modern sense of tort law, contract law, and competition law in the field of intellectual property rights, there are several problems with respect to its inception. A separate law on trade secrets, on the other hand, would abolish the distinction. India, as a developing country, needs a strict trade secret security law. The TRIPS Agreement mandated its Member States to amend their laws and enforce the new legislation in order to satisfy their obligations under the TRIPS Agreement. It is now time to introduce legislation in India that safeguards trade secrets and confidentiality while also making necessary reforms to the existing Competition Act framework to avoid the misappropriation and enforcement of such sensitive information.

Taking the above into account, it is fair to conclude that trade secret security in India is in its infancy, and that it is crucial for it to grow, keeping in mind that India, as a developing nation, needs laws and regulations that are conducive to the business climate in order to turn the country into a haven for companies offshoring as well as a haven for investors.


[1] Author is an Advocate in India.

[2] 1995 IVAD Delhi 732, 61 (1995) DLT 6, 1995 (35) DRJ 335, (1996) 113 PLR 31

[3] Trade Secrets, Intellectual Property Expert Group (2016), (last visited May 5, 2021).

[4] Codingest, Business Law &; its conflicts with Trade Secrets, Sonisvision, post/business-law-its-conflicts-with-trade-secrets (last visited May 5, 2021).

[5] Trade secrets, WIPO, (last visited May 5, 2021).

[6] Id.

[7] Supra note 5.

[8] Supra note 4.

[9] Supra note 3.

[10] See, WIPO Publication 832(E) ISBN 92-805-0642

[11] Supra note 5.

[12] Sharon Sandeen, Trade Secret Law in a Nutshell, 2nd edition

[13] Protecting Trade Secrets In India In The Absence Of A Regime, Khurana and Khurana, (Last Visited on 09/04/2021)

[14] Trevor Cook, Trade Secret Protection: A Global Guide, 2016

[15] (1985), (10), IPLR, 243

[16] [1967] RPC 329

[17] AIR 1987 Delhi 372

[18] 130 (2006) DLT 330

[19] (1965) 1 all ER 611

[20] Section 27- Agreement in restraint of trade, void

[21] Attorney Brian Farkas, Trade Secret Basics FAQ, NOLO (2019), (last visited May 5, 2021).

[22] Supra

[23] Supra Note 5.

[24] Kamakhya Srivastava, Trade Secrets In Indian Courts – Intellectual Property – India, Mondaq (2012), (last visited May 5, 2021).

[25] Id.

[26] 2006 (3) ARBLR 118 Delhi, 2006 (2) CTLJ 57 Del, 131 (2006) DLT 681

[27] 2003 (3) BomCR 563, 2003 (3) MhLj 726

[28] AIR 1988 Bom 157

[29] National Metal and Materials Technology Center, Thailand, Bridging the Gap from the Laboratory to the Market, WIPO, (last visited on 09/04/2021)

[30] Id.

[31] Eashan Ghosh, Imperfect Recollections: The Indian Supreme Court on Trade Mark Law, Thomson Reuters, 1 Jan 2020